The world's largest contract chip maker will invest NT$300 billion ($9.3 billion) in four phases over several years to build the factory, TSMC said. The first phase of the plant will finish in early 2012, when TSMC will start producing chips using some of its most advanced production technology, 40-nanometer and 28-nanometer, at the location.

New chip factories are essential to keep pace with growth in the semiconductor industry and ensure there are enough chips for all the new gadgets people want.

Demand for chips used in computers has been so brisk, it prompted market researcher IDC to revise up its global chip sales forecast to $274 billion, up 22 percent from last year, mainly due to strong demand for chips used in computers. The market researcher's previous forecast, from March, called for growth of just 16 percent.

TSMC is building its new factory at an industrial park in the new the city of Taichung, in central Taiwan. The company will hire around 8,000 workers for the factory by the time it is fully completed. TSMC did not say when it expects to complete the final phase of the project.

The new Taichung factory, named Fab 5, will be TSMC's third "gigafab," a term used to denote the massive size of the factory. TSMC's other gigafabs are Fab 12 in Hsinchu and Fab 14 in Tainan, all in Taiwan. When in full production, a gigafab can produce chips on 100,000 silicon wafers per month, compared to less than half that for a normal chip factory.